Minimum Wages, Globalization, and Poverty in Honduras

SummaryWe test whether minimum wage legislation is an effective poverty reduction tool in a poor country trying to stay competitive in the global economy. In Honduras, increases in relatively high minimum wages lead to reductions in poverty, especially extreme poverty. However, the impact is felt only in households with workers in large firms and felt more strongly among those with low wage workers. Increases in the minimum do not affect poverty in sectors where minimum wages are not enforced or do not apply. Hence minimum wages can be a poverty reduction tool in the formal sector, which competes globally.